We recently compiled a list of the 10 most promising growth stocks by hedge funds. In this article, we’ll take a look at how Amazon.com Inc (NASDAQ:AMZN) stands compared to other top growth stocks by hedge funds.
Bull market and investor psychology
Investors were worried about the start of a bull market, and the S&P 500 confirmed that earlier this year. The bull market continued to push markets to new all-time highs, supporting overall sales and profit growth.
Going further, the upward momentum appears to have peaked, with market indexes hitting record highs. It was widely expected that stock prices would soar once the Fed lowered interest rates to support the struggling economy, but that hasn’t been the case.
Also read: David Einhorn Stock Portfolio: Top 10 Stocks to Buy and 7 Best Nanotech Penny Stocks to Buy.
As the global economy faces a number of challenges, it is becoming increasingly clear that investors are becoming more sensitive to growth concerns. Topping the list is rising geopolitical tensions in the Middle East, threatening to disrupt supply chain networks. Rising energy prices due to the escalation of all-out war could lead to higher inflation, making markets nervous.
Analysts at UBS have already warned investors against leaning too heavily into defensive stocks as global economic growth slows due to deteriorating fundamentals. Although UBS does not foresee a deep recession, the bank is cautious and advises clients to focus on key sectors such as utilities and pharmaceuticals, which consistently outperform during recessions.
Geopolitical tensions and concerns about a global economic slowdown are causing investors to increasingly turn to defensive strategies, but Morgan Stanley Investment Management’s Andrew Slimmon says he disagrees with them. Recommended.
“Right now it’s just a time to be careful. Don’t go after a defense that’s working because I think once you get into the fourth quarter, it’s not going to work,” the portfolio manager told CNBC’s “The Exchange.”
“While we expect volatility to continue in October, we do not believe the overall market trend is bearish,” Robert Slimer, technical strategist at RBC Wealth Management, said in a letter to clients. “We encourage investors to maintain perspective on long-term trends.” .
This sentiment reflects the need to focus on high-growth companies. Investors who diversify their portfolios into high-growth companies can ultimately reap large profits, no matter how much the stock price rises or falls in the short term.
story continues
Analysts predict that the S&P 500 stocks will grow at an average annual EPS rate of 8.5% over the next five years. On the other hand, the best growth stocks are poised to outperform this benchmark by a factor of 2-3, or even more.
First, companies exposed to the spectacle of artificial intelligence and those leveraging the technology continue to experience record revenue and revenue growth, and as a result dominate most hedge fund portfolios. Additionally, hedge funds say the most promising growth stocks are those whose core businesses will be positively impacted by increased consumer purchasing power. As the Fed guides the economy to a soft landing, consumer buying confidence is expected to improve, benefiting cyclical stocks. Additionally, a rate cut would likely benefit growth and tech stocks as well.
Although market fluctuations are inevitable, the secret to the success of growth stocks lies in the strength of their core business. Regardless of whether stock prices rise or fall in the short term, investing consistently in competitive, solid businesses can ultimately reap great rewards.
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our methodology
To create our list of the most promising hedge fund growth stocks, we scoured ETFs and online rankings to find 30 popular growth stocks. We then selected the 10 stocks most widely held by hedge funds as of Q2 2024. Finally, we ranked the stocks by the number of hedge funds that own them.
Here at Insider Monkey we’re obsessed with hedge fund stocks. The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
Amazon.com Inc. (NASDAQ:AMZN)
Number of hedge fund holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is often recognized as a technology investment play as it invests in a variety of technology solutions to strengthen its leadership in multiple sectors. Nevertheless, the company stands out as one of the most promising growth stocks, according to hedge funds that diversify their investment portfolios into consumer cyclical sectors.
Recent interest rate cuts are expected to increase consumer purchasing power, and Amazon should be one of the biggest beneficiaries as customers flock to its e-commerce platform.
Amazon.com, Inc. (NASDAQ:AMZN)’s long-term outlook lies in the digital market as its Prime program gains wider recognition. The more benefits Amazon offers through Prime, the more loyal its customers will be, the more they can raise prices, and the more revenue they can generate.
Similarly, the company has achieved success in the online shopping space by consolidating its retail business framework and leveraging its massive scale to provide exceptional service and competitive pricing. This strategy has been replicated in the cloud industry, where it commands a 31% market share.
The company derives most of its revenue from its online marketplace, but it also makes most of its profits from its cloud division, which is touted as the world’s largest cloud infrastructure. AWS operates at much higher margins, subsidizing the growth of Amazon’s lower-margin e-commerce business.
Amazon.com, Inc. (NASDAQ:AMZN) is also diversifying its revenue streams by promoting live sports advertising and acquiring the rights to broadcast National Basketball Association and Women’s National Basketball Association games starting in 2025. I’m trying.
Analysts expect Amazon’s earnings to grow nearly 28% annually over the next three to five years, justifying the stock trading at a premium of 30 times earnings. Additionally, analysts rate the stock as a buy at its average price. The price target is $223.43, implying an upside potential of 21.77%. According to our Insider Monkey database, by the end of Q2 2024, 308 hedge funds had invested in AMZN, with a total investment of $65.85 billion.
Diamond Hill Select Strategy said the following about Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Top individual contributors in the second quarter included Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments, and Mr. Cooper Group. has benefited from strong profitability, particularly in its Amazon Web Services (AWS) business, and amid growing optimism about AWS demand as Amazon customers continue to invest in generative AI projects. Stock prices have also risen.”
Overall, AMZN ranks #1 on hedge funds’ list of 10 Most Promising Growth Stocks. While we see AMZN’s potential as an investment, we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you’re looking for more promising AI stocks than AMZN, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
